LinkedIn vs. Facebook: Tale of the tape

Commentary: Social-media battle is just beginning

By

JohnShinal

SAN FRANCISCO (MarketWatch) — Now that LinkedIn Corp. and Facebook Inc. have both reported third-quarter results, it’s time to compare their financial reports for an up-to-date look at the market for social-media ad dollars and services.

These two marquee Internet names are in the early stages of a battle that will decide where the majority of businesses will spend their (non-Google) ad and marketing budgets on social networks.

Tale of the tape

Facebook

LinkedIn

Revenue

$1.26 billion, +32%

$252 million, +81%

Ad revenue

$1.1 billion, +36%

$60 million, +60%

Expenses

up 64%

up 82%

Operating income

$377 million, -9%

$6 million, +31%

Operating margin

30%

2%

Net income (or loss) per share

(2 cents)

2 cents

While Facebook
FB, -1.26%
is primarily serving up consumer-focused ads right now, and LinkedIn’s
LNKD, -10.52%
members are targeted for their professional interests, look for competition between the two to grow as the social-media market develops.

The two companies also have areas in which they don’t compete, of course, namely Facebook’s payments business and LinkedIn services that help its members and potential employers find each other.

LinkedIn’s other markets give it an edge over Facebook in the long run, in my view. More than half of the company’s third-quarter revenue came from selling professional services to businesses — a market that will likely support higher margins in the long term than selling consumer-focused ads.

Still, I think both stocks are too expensive right now based on traditional valuation metrics, including price-to-sales and price-to-earnings ratios.

Revenue growth

LinkedIn sales rose 81% from a year ago to $252 million, with robust growth coming from all three of its businesses: ad sales to marketers, premium subscriptions for its members and online-recruitment services sold to firms looking for job candidates.

By comparison, Facebook revenue rose 32% to $1.26 billion, with ad sales contributing the overwhelming amount of the total, with the company’s payments business accounting for the rest.

So Facebook is still five times the size of LinkedIn by revenue, while LinkedIn is growing 2.5 times faster than its larger rival.

Revenue mix

In the business in which it competes directly with Facebook, selling online ads and marketing services, LinkedIn sales rose 60% to $64 million.

Facebook’s gift to investors

(3:57)

Extending the business from advertising into commerce is one initiative that could help the social-media giant make more money off its user base.(Photo: Getty Images)

That business, which LinkedIn calls its marketing solutions, is becoming a smaller part of the company’s revenue mix, as other businesses are growing faster. In the third quarter, marketing solutions contributed just one-quarter of LinkedIn’s total revenue, down from 29% in the second quarter.

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